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Time Warner has announced that it is spending $50 million on ads in a variety of traditional and online media to win back customers it has lost. Why is the company doing this?

Time Warner representatives would like you to think that it is because they are “nice guys” and their service has improved. As quoted in the New York Times, Jeffrey A. Hirsch, the chief marketing officer of Time Warner Cable says, “We, as a company, are fundamentally different and better than we were a few years ago when these upstart competitors started coming in.” Could the real reason be better competition and lost business?

Better competitors

Yes, these upstart competitors – AT&T U-verse, Verizon FIOS, and satellite TV providers Dish Network and DirecTV are “upstarts” because they have done a better job of taking care of their customers. What a novel idea! According to the American Customer Satisfaction Index for Subscription Television Service, Time Warner ranks below average and near the bottom, and these upstarts are all above average.

Time Warner Cable is losing subscribers

The most likely reason Time Warner is feeling compelled to improve their service and advertise its improvements is they have been losing subscribers. According to the latest available data, Time Warner lost 140,000 subscribers in the 3rd quarter of 2012 – an increase over the 129,000 they lost in the same quarter of 2011. In addition to losing subscribers to competitive services, many TV households are cutting the cord by watching TV and videos online or switching to free broadcast TV. There are many more choices than ever thanks to the ability to view content on desktops, laptops and mobile devices such as tablets and smartphones.

Losing subscribers translates to losing revenue

According to ABI research the worldwide pay TV market was $236 billion by the end of 2012. Pay TV revenue in North America is expected to peak in 2013 and gradually fall to $88.2 billion by 2017. This will cause pay-TV operators to fight each other for subscribers. This is likely the impetus behind Time Warner’s ad campaign. Now that many have left, they want us back because their business is turning into a zero-sum game. Not only that. Options offered by Netflix, Hulu, and others are, in many cases, are more flexible and less expensive.

Understanding the Lifetime value of a customer

Too bad the cable TV operators, such as Time Warner, don’t seem to understand the Lifetime Value of a customer. If they did, they would not have to spend so much money getting back what they lost. They would have taken better care of those who called to complain about outages or snow on their TV sets. They would have done a better job of training customer service people who routinely “played dumb” during an outage or were rude to subscribers calling for service. They would not have made it so difficult for subscribers to get credits for outages and other technical problems. The executives in these companies need to understand that they exist and prosper because they satisfy the needs of their customers.

If they take care of customers, the money will follow. If they chase after the money by cutting customer service quality or charging for previously included items, as they have done since they started in the cable TV business, they will end up losing the customers and money. Most important of all, they should understand that actions that are viewed to be exploitative and insensitive only cause many to no longer trust them. Once they lose the trust of the public, it is hard to get it back. Even if the ad campaign is exceptional, it will not work unless the product is significantly improved. For too many, the wounds are too deep, the switching costs are too high, and the trust is long gone.